After disappointing the markets for the last two years, Infosys has gone back to its credo of “under-promising and over-delivering”. The company has, after a very long time, beaten the Street’s estimates by delivering better than expected top line growth. Not only is the revenue growth back, so also is the management’s confidence. Shares of Infosys moved up 13% on Friday morning after the company hiked its full year revenue guidance upwards to $7.45 billion from the $7.34 billion projected earlier.
After long, the management has conveyed that they are not expecting any budget cuts or deal cancellations in Europe. In fact, there is a sense of security in Europe now compared to the macro-challenges, the management highlighted. Barclays believes the results signal a turn in trajectory of the revenue growth, with December 2012 quarter organic dollar revenue growth of 4.2 per cent quarter on quarter and March 2013 implied quarterly revenue guidance of +2.8 per cent quarter-on-quarter growth. The brokerage believes that this could reflect some initial success in the company’s new, more aggressive strategy. Growth in December (and the March guidance) now implies a narrowing of the growth gap versus TCS, which could help the stock.
The company posted a 6.3% sequential growth in revenues to $1.91 billion (including Lodestone). Revenue growth excluding Lodestone grew 4.2%, well ahead of the 3.7% that the company needed to have clocked to meet its five% full year growth guidance. In constant currency revenues are up 4.4% in the third quarter. Operating margin is at 26.1% excluding Lodestone and the pricing environment is stable. In the quarter, pricing was up 1.8%. Rajiv Bansal, chief financial officer at Infosys said: “We were able to maintain margins through efficiency improvements despite increased operating expenses.”
The Street was expecting the company to report an organic revenue growth of two% quarter-on-quarter but the company has reported twice of that. However, net profit has remained flat ($434 million) quarter on quarter, which indicates that margin expansion has not happened.
This means that the company is back in the reckoning and is aggressively pursuing business and not walking away from it. This is reflected in the company’s deal wins. The company has won eight large outsourcing deals in the third quarter amounting to $731 million of total contract value and in the products and platform space the company has won 14 new deals. The company along with its subsidiaries has added 53 new clients.
Also see: Infosys Q3 consolidated net flat at Rs 2,369 cr q-o-q
